WASHINGTON–The International Monetary Fund (IMF) says the completion of the exchange of the "super bond" for new United States denominated bonds has brought "substantial cash-flow relief" to Belize.The IMF, which recently concluded a review of the country's economy, said that the new bonds, which will expire in 2038, has resulted in a cash flow of US$130 million over the next five years.
Last December, the Dean Barrow government said it had reached an agreement with its creditors on restructuring the country's US$544 million foreign debt, also known as the super bond.Prime Minister Barrow described the agreement as "comprehensive" adding "it is sustainable, and it will provide well in excess of US$150 million in relief to Belize".
Last year, bondholders had rejected an offer from the Caribbean Community (CARICOM) country on restructuring the debt and said they had hired lawyers after the expiry of a reprieve on legal action.Belize, which said it could not afford to meet rising interest payments on the bond, shocked investors with an earlier suggestion that they take a haircut of up to 45 per cent.
The IMF said that the debt restructuring took place against prolonged legal disputes over the nationalization of two utility companies, Belize Telemedia Limited (BTL) and Belize Electricity Limited (BEL), and that no agreement has been reached yet over compensation payments.It said that the legal dispute may take a few years in court.The IMF said that the output growth for Belize is estimated at 5.3 per cent in 2012, led by a recovery from the 2011 effects of weather-related damages in commodity exports.
Inflation averaged 1.4 per cent, as commodity price pressures abated, but the IMF said the external current account deficit widened to about 1.7 per cent of Gross Domestic Product (GDP) due to a steep drop in oil exports and higher imports of fuel and electricity."Notwithstanding this deterioration, international reserve coverage is estimated at 3.4 months of imports up from three months in 2011, thanks in part to strong foreign direct investment inflows in the sugar sector. Unemployment remains high at 16 per cent."
The Washington-based financial institution said that the fiscal primary surplus for the fiscal year 2012/13 is expected to deteriorate to 1.3 per cent of GDP compared to 2.3 per cent of GDP in 2011."This deterioration largely reflects the continued decline in oil-related revenues and an increase in the wage bill, despite robust growth in General Sales Tax (GST) revenue."
But it said after two years of decline, credit to the private sector recovered modestly in 2012 and that high non-performing loans (NPLs) in the banking system - 20 per cent of total loans at end-2012 - and loan write-offs continue to hold back private sector credit growth, estimated at 1.1 per cent, and are eroding banks' net earnings.The IMF said that despite the acceleration in economic activity in 2012, output growth is expected to moderate to about 2.5 per cent in the medium term.
It said that the primary surplus is projected at one per cent of GDP in the next fiscal year with public debt expected to decline to about 75 per cent of GDP at end-2013, reflecting, in part, the net face value haircut of three per cent from the recent debt exchange.
"The government may face large financing needs over the medium term largely associated with compensation to the former shareholders of nationalized companies, pending legal rulings. The external current account deficit is projected to widen to about 1.9 per cent of GDP owing to the continued deterioration in crude oil exports and rising imports. The reserve coverage would remain at around 3 months of imports by end-2013," the IMF said.
The IMF said it was pleased nonetheless with the economic performance of the Caribbean Community (CARICOM) country based also on the successful completion of the external debt exchange.
"These positive developments notwithstanding," the IMF noted that Belize's economy still faces substantial challenges and vulnerabilities" and has encouraged the authorities to take advantage of the existing breathing space to rebuild policy buffers, pursue active debt management, accelerate financial sector reform, and buttress the economy's resilience to external shocks.
The IMF welcomed the authorities' plans to revamp the debt management framework and encouraged continued efforts to develop a more robust debt management, strengthen the institutional framework, and build capacity to implement a medium term debt management strategy."Options to develop the domestic debt market should also be explored to mobilize domestic financing," the IMF said.